Understanding GST & HST

Understanding GST & HST

Tax rules seem to change almost every day. One set of rules which luckily have not changed for a few years now, however, still seem to cause confusion are those surrounding GST & HST and when small business owners are required to register. Therefore understanding GST & HST is very important.

Before getting into the details, lets do a quick recap of what the GST & HST is.

GST is a goods and service tax which applies to most goods and services in Canada. The GST tax rate is 5%. HST is the harmonized sales tax (federal and provincial) which is imposed in provinces, such as Ontario.

Generally, everyone has to pay GST & HST on most goods and services they receive in Canada. It is essential for small business owners to be aware of their GST & HST registration requirements. You have to register for GST & HST if you are providing a taxable supply in Canada and are not a small supplier.

A small supplier is someone whose sales does not exceed the $30,000 threshold in four consecutive calendar quarters or single quarter. You can still register for HST voluntarily even if you don’t meet the threshold. However, small suppliers often feel overwhelmed with the reporting requirements, especially if they have just started their business or are working part time.

Here are a few reminders for small business owners:

If you are self-employed taxi or limousine driver, you have to register for GST & HST – the threshold does not apply to you.

Effective July 1, 2017, if you are an Uber driver, you are now required to register for HST. That means for every $100 a customer pays you, $11.5 is HST you collected on behalf of the government and $88.50 is in your pocket

You are allowed to claim ITC (input tax credits) to recover the GST & HST paid or payable on the purchases and operating expenses (such as meals, telephone, dues and fees etc).

Remember that you are collecting HST on the CRA’s behalf – often people forget that they have to remit amounts to the CRA at the end of the year and are scrambling to find the funds.

When you purchase a passenger vehicle with a cost of more than $30,000 and it is considered business use, the HST is generally limited to $3,900 max.

The max amount that you can deduct for a leased vehicle is $800+HST – if your monthly charge is higher than this, the max you can deduct is the $104/month of HST

Insurance costs, bank charges and out of country expenses do not include HST

If you owed more than $3,000 in HST in the prior year and are an annual filer, you are required to make GST/HST tax installments to avoid interest being charged.

There are certain industries which provide exempt and zero-rated services. Exempt services are those for which you do not have to charge HST, hence you cannot register for HST and claim the ITC (input tax credits) back. Exempt services include:

Used residential housing

Most health, medical and dental services performed by licensed physicians or dentists for medical reasons

Most financial institution services including arrangements for a loan or mortgage

Zero-rated services are those which are taxable but the tax rate is zero. This implies that you do not collect HST, but are allowed to claim ITC’s (input tax credit) and get the HST you paid back. These services include:

Basic groceries

Prescription drugs

Many medical devices, such as hearing aids and artificial teeth

Tip: There may be instances where you are providing a bundled service and hence may have part of your supply which is taxable and some exempt or some zero-rated and some taxable. Take the example of a pharmacy, which sells prescription drugs (zero-rated) but also sells off the counter items, such as chips, pop etc (which is taxable).

As you can see, the rules surrounding GST & HST are complicated and it is pivotal to get the right advice from the start. Often times we incorporate our business and do not realize our financial and compliance obligations. Call our office today to book for free consultation or click here for contact information.

This article is for information purposes only. Tax rules regarding GST/HST can get complicated and hence we highly recommended you speak to a professional to discuss your particular situation or contact us.